The Giant thread of options

[subratabera]

THANKS...THANKS...THANKS...

Thankyou very much for starting this thread.

Subrata Bera.

[bvpraveen]

Hello Avi,

Can you please clarify my doubt?

I did my first trade in Options. I bought 1 lot of 29Mar Nifty PE 3500 option at Rs.34.8 day before yesterday morning. Yesterday it went around Rs.70 and closed at Rs.58.85. Today it closed at Rs.46. But if you see the spot price at the close, both were almost same, ie around 3641 and 3643.6 respectively.

My doubt is although the spot price at close were almost same, why is there a huge difference in their premium value, between yesterday close and today's close.(Rs.58.85 and Rs.46 respectively).

Is it due to time value? If its so, time value affects to such a great extend on premium price?

Thanks,
Praveen.

[oilman5]

Thanks,....
Option Is Demystified Here...bravo...beginner Av

[beginner_av]

There are various parts to it and all of them are at work...Yesterday everyone thought that the market is going down to hell...everyone rushes to buy puts...so panic...increase in volatility...skewness of bearishness in the distribution curve...and so put price increase. Remember that in India the mathematical models of option pricing are of little use. Use sentiment and u'll get very effective result. Today when the market opened 200 pts up, people all said huh. there u r...we r up now and the bad time is over...so put demand decreases...even tho by the end mkt comes down..people are not reacting with panic...let it go down tomorrow and u'll see how put prices expand.

One morething u have to look at is Put call parity...u'll see that even when market is up..and call prices are increasing...put prices increase too...strange isn't it. when the market goes up, why should put prices increase..see if u can find out...

[NAVEEVIa]

Originally Posted by beginner_av

There are various parts to it and all of them are at work...Yesterday everyone thought that the market is going down to hell...everyone rushes to buy puts...so panic...increase in volatility...skewness of bearishness in the distribution curve...and so put price increase. Remember that in India the mathematical models of option pricing are of little use. Use sentiment and u'll get very effective result. Today when the market opened 200 pts up, people all said huh. there u r...we r up now and the bad time is over...so put demand decreases...even tho by the end mkt comes down..people are not reacting with panic...let it go down tomorrow and u'll see how put prices expand.

One morething u have to look at is Put call parity...u'll see that even when market is up..and call prices are increasing...put prices increase too...strange isn't it. when the market goes up, why should put prices increase..see if u can find out...

Maybe because of the increase in volatilty
or maybe just a demand-supply mismatch

[bvpraveen]

There are various parts to it and all of them are at work...Yesterday everyone thought that the market is going down to hell...

Thanks for the explanation. Understood the point very well.

One morething u have to look at is Put call parity...u'll see that even when market is up..and call prices are increasing...put prices increase too...strange isn't it. when the market goes up, why should put prices increase..see if u can find out...

Just my views:
1. They are confident that the market will go down. Buy everytime the market goes up...sell it later.
2. Kind of hedging.

Can you itself provide the correct answer?

Regards,
Praveen.

[bvpraveen]

Hi Avi,

One more doubt:

If I'm dead sure about my view on the market, either bullish or bearish, which one will be best - BUY option or write(SELL) options.

For eg., if i'm very much bullish on Nifty whose spot price is 3500. Then should I BUY call option (ATM/OTM) or SELL put option whose strike price <= 3500? Which one will be profitable, if we assume that we have enough margin money required for writing options.

Praveen.

[kedarvb]

Hallo, av
I want to ask some doubts..

Originally Posted by beginner_av

Here I go...after seeing some requests on options related stuff...I start this thread with a dramatic name. .....
....... More depending on response

It is very prudent that market(nifty) will not go to 4300 points in march
so if one writes call option of 4300 then he will get a premium of 2 rs. now.
now pl. let me know if mkt goes up but not touch 4300 then premium will increase but as this is out of money call so it will not be exercised by holder & writer will get 2rs. as a safe income , is this right??????


Pl. tell me earning by writting out of money options is same for individuals stock


kindly educate & advice on writting out of money call option in this market scenario

[NAVEEVIa]

Originally Posted by kedarvb

Hallo, av
I want to ask some doubts..



It is very prudent that market(nifty) will not go to 4300 points in march
so if one writes call option of 4300 then he will get a premium of 2 rs. now.
now pl. let me know if mkt goes up but not touch 4300 then premium will increase but as this is out of money call so it will not be exercised by holder & writer will get 2rs. as a safe income , is this right??????


Pl. tell me earning by writting out of money options is same for individuals stock


kindly educate & advice on writting out of money call option in this market scenario

I have only once sold an option, so not much experience
But i think as the premium will rise , though the option is out of money, the probability of it getting in the money will increase & ur broker will demand additional funds, so that he knows u can take the unexpected hit
So even though the option may expire worthless , u have to consider the cost of those additional funds.
Regards
Naveen

[beginner_av]

Originally Posted by kedarvb

Hallo, av
I want to ask some doubts..



It is very prudent that market(nifty) will not go to 4300 points in march
so if one writes call option of 4300 then he will get a premium of 2 rs. now.
now pl. let me know if mkt goes up but not touch 4300 then premium will increase but as this is out of money call so it will not be exercised by holder & writer will get 2rs. as a safe income , is this right??????


Pl. tell me earning by writting out of money options is same for individuals stock


kindly educate & advice on writting out of money call option in this market scenario

It is very very prudent provided the following is taken into account:
1. You make substantial money after brokerage...
2. if u have margin problem u have to buy it back encountering another round of brokerage and STT
3. U have pure time value left in such a far OTM call which will hardly reduce any further and will have to be held till expiry...now the calculation is that on 20000 margin is Rs 150-175(excl brokerage) a good % return?
4. You try to sell more fluff (time value, say at 4000, 3950 etc, which will dissipate faster
5. And whatever u sell, u MUST have a plan to take action when the market reaches back a certain level.